TCI to sue Coal India if it fails to set FSA price by June end

UK-based The Children’s Investment Fund (TCI) has warned Coal India Ltd (CIL) of legal recourse if the PSU failed to meet June-end deadline to set FSA coal price at market level.

“Unless we hear no later than 30 June that the board of CIL is willing to set a clear, unambiguous and verifiable path to price all FSA coal to market levels, we would be left with no options but to bring claims against both CIL and its directors for repeated breaches of company law, violation of fiduciary duties and obligations to shareholders,” TCI said.

TCI is the biggest foreign investor in CIL and has a minority stake in it. It has been accusing the PSU of not protecting minority shareholders’ interest and harming the company by not opposing fuel supply agreements (FSA).

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[caption id=“attachment_343271” align=“alignleft” width=“380” caption=“The government on April 3 had issued a directive to CIL to commit a minimum assured fuel supply to the power producers, failing which it would be subject to penalty. Reuters”]  [/caption]

In a letter to the CIL Chairman S Narsing Rao TCI said coal prices should be linked to market rates as it would increase Coal India’s profitability.

Pointing out at irregularities in coal blocks allocation it said, “We regard the conduct of the Government of India in relation to the disposal of coal blocks as having very substantial parallels with its unlawful and improper interference in the affairs of CIL whereby it has compelled CIL to enter into FSAs for supply of coal at prices well below market.”

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TCI said in both cases (block allocation and FSA) “assets have been disposed of at undervalue for no good, commercial reason, in pursuance of corrupt objectives, thereby resulting in colossal losses of scarce public resources.”

Earlier, it had estimated that if CIL sells its FSA coal at market price levels, its profits will increase by $9 billion and had alleged that large industrial companies had pushed the government to impose new FSAs on CIL at the cost of the company.

The government on April 3 had issued a directive to CIL to commit a minimum assured fuel supply to the power producers, failing which it would be subject to penalty. The directive was issued following a meeting between the power sector honchos and the PMO.

Meanwhile, Coal India has introduced a one-time offer that allows power utilities to lift the fuel directly from mines. The scheme is available for independent power producers drawing coal under fuel supply agreements (FSAs) as well. “A one-time offer is being made to all power utilities drawing coal under FSA during 2012-13 to lift the coal which is held in the stocks on ‘as is where is’ basis with the stipulation that the power stations will make their own evacuation arrangement,” CIL has said in a notice.

This is the first time the state-run Coal India Ltd (CIL) has initiated such a move. The new scheme by CIL will not only make more coal to power utilities but will also liquidate stocks at mine heads.

“This will serve the objective of honouring the FSA up to trigger point with normal dispatches and to even exceed it by allowing liquidation from the stocks wherever the power utilities come forward to lift by either road-cum-rail arrangements, now the railways have agreed to move such coal through good sheds,” the CIL notice dated June 12 said.

As per information, CIL has over 60 million tonnes (MT) of stocks piled up at pitheads due to problems like inadequate rakes for removing the same. The coal major accounts for 80 per cent of the total domestic output. It has set a target of 464 MT output for the current fiscal, of which about 347 MT would be dispatched to power stations. Last year, it has recorded a production of about 435 MT.

PTI